A flurry of pay increases for teachers and various state employees pushed government salary expenditure beyond initial projections in 2024. 

The finance ministry acknowledged in a recent fiscal strategy document that the cost of these sectoral agreements had exceeded expected costs. These costs were further pushed up by the settlement of arrears given to teachers as part of a new pay agreement. 

According to the document, outlays on contractual services and health sector spending also came in higher than expected. 

These “expenditure pressures” brought about by increases in salaries and capital spending will be partially offset by a reduction in subsidies and the withdrawal of financial support to the former national airline Air Malta, the ministry said. 

After 50 years of flying, the debt-ridden carrier ceased operations last March, with a new airline taking over. 

The stabilisation of energy prices is also expected to see a drop in the cost of energy subsidies. The government said it is cautious about withdrawing energy subsidies too rapidly, as this risks triggering high inflation. In the long term, the aim is to reduce dependence on energy subsidies by investing in renewable energy and improving energy efficiency. 

Malta is on the European Commission’s radar for violating spending rules designed to keep yearly government deficits in check. Measures are in place to improve the deficit-to-GDP ratio by limiting overall net increases in expenditure, the government said in the strategy document. 

Malta’s debt-to-GDP ratio, a measure of long-term indebtedness, is set to increase from 47.4% in 2023 to 50.1% in 2025.  This is lower than the 60% limit set by the EU. 

On the revenue front, inflows from taxes on income and wealth came in higher than projected, reflecting a stronger-than-expected growth in wages and corporate profits, as well as improvements in tax collection measures.